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BARTELS v. CLAYTON BROKERAGE CO. OF ST. LOUIS

March 28, 1986

KARL H. BARTELS, et al., Plaintiffs,
v.
CLAYTON BROKERAGE CO. OF ST. LOUIS, INC., et al., Defendants


Goettel, D.J.


The opinion of the court was delivered by: GOETTEL

GOETTEL, D.J.:

The plaintiffs seek damages for the defendants' allegedly fraudulent acts in inducing them to invest in commodity futures contracts. The plaintiffs allege that the defendants misrepresented the financial risks of commodity futures and neglected to conform to the Commodity Futures Trading Commission ("CFTC") rules in setting up the plaintiffs' accounts. Their complaint alleges violations of section 4b of the Commodity Exchange Act, 7 U.S.C. § 6b (1982) ("CEA"); section 901(a) of the Organized Crime Control Act of 1970, 18 U.S.C. § 1961 et seq. (1982) ("RICO"); and common law fraud.

 Defendant, Clayton Brokerage of St. Louis ("Clayton"), moves, pursuant to rules 9, 12, and 54 of the Federal Rules of Civil Procedure, to dismiss all three causes of action, or, alternatively, for summary judgment. For the reasons stated below Clayton's motion is granted in part and denied in part.

 Background

 The plaintiffs are a group of fifty-six foreign investors, primarily West German citizens. *fn1" Each had separate dealings with the defendants. Defendant Clayton, a Missouri corporation doing business in New York, is a Futures Commissions Merchant ("FCM") registered with the CFTC. The other named defendants are Westfield Holdings, Ltd. ("Westfield"), a corporation organized under the laws of the Cayman Islands, British West Indies; John Tunnel ("Tunnel"), a United States citizen and president of Westfield; Westfield Financial Services GmbH ("GmbH"), a wholly owned subsidiary of Westfield organized under the laws of the Federal Republic of Germany; *fn2" and Westfield Financial Services, Inc. ("Financial"). *fn3" When this motion was filed by Clayton, it was the only defendant that had been served. *fn4"

 On or before November 14, 1978, Clayton, Tunnel, Westfield, and GmbH set up a joint New York enterprise (the "Enterprise"). Tunnel and Westfield subleased space from Clayton's New York quarters at Four World Trade Center. Clayton agreed to pay Tunnel, Westfield, and GmbH a monthly fee to solicit customers for the Enterprise. The customers would open accounts with Clayton, which would execute trades in commodity futures contracts on their behalf. For every transaction in a customer's account, Clayton charged a commission. Clayton agreed to give a portion of its commissions to Tunnel and Westfield. *fn5" GmbH solicited European customers, some of whom are the plaintiffs in this action.

 After November 14, 1978, GmbH sent letters to the plaintiffs recommending investments in Treasury Bonds ("T-bonds") and gold in the commodity futures market. GmbH represented that investments in T-bonds and gold futures were relatively risk-free. *fn6" GmbH advised that it would open commodity trading accounts for European customers with Clayton, "its exclusive broker with forty years of successful trading experience." Complaint, Exhibit A. GmbH also solicited customers by phone, making many of the same representations orally.

 The plaintiffs opened accounts by returning a form *fn7" and money to GmbH. GmbH deposited this money into a German bank account opened in Clayton's name. *fn8" The money was then transferred to Clayton in New York. Clayton opened separate accounts for each plaintiff and commenced trading in T-bonds and gold futures, as well as a variety of other commodity futures. *fn9" Clayton continued trading on behalf of the plaintiffs until January 1981. *fn10"

 The plaintiffs allege that they relied on misrepresentations and omissions made by GmbH and Clayton in deciding to open their accounts and deposit money with Clayton. They assert that Clayton, as a FCM, had a duty under the CFTC rules to supervise the Enterprise. *fn11" The plaintiffs claim Clayton violated other CFTC rules by failing to (1) explain the risks of transactions in commodity futures markets; (2) obtain signed risk disclosure statements and written authorization forms prior to initiating any transactions; (3) ensure that all solicitations were accurate and free from false representations or omissions; and (4) see that all persons soliciting customers, including foreign agents, were registered with and approved by the CFTC. *fn12" The plaintiffs claim that they relied on the lawfulness and legitimacy of the Enterprise. The defendant's malfeasance, they assert, cost the plaintiffs an average of $10,000 each. *fn13"

 In 1982, some of the plaintiffs commenced an action for reparations with the CFTC pursuant to section 14 of the CEA, 7 U.S.C. § 18 (1982), which were dismissed in 1984. *fn14" They filed the instant action on September 9, 1985, claiming three causes of action: (1) violation of section 4b of the CEA; (2) common law fraud; and (3) RICO violations. Clayton moves, pursuant to rules 9, 12, and 54 of the Federal Rules of Civil Procedure, to dismiss, or, alternatively, for summary judgment. Clayton asserts four grounds for dismissal: (1) the complaint fails to state a claim on which relief can be granted because it is predicated on alleged violations of rules that have been improperly promulgated by the CFTC; (2) all three causes of action are barred by applicable statutes of limitations; (3) the complaint fails to plead fraud with the particularity required by rule 9(b) of the Federal Rules of Civil Procedure; and (4) forum non conveniens.

 Discussion

 Jurisdiction is asserted under 28 U.S.C. §§ 1331, 1337 (1982) and principles of pendent jurisdiction.

 For the purposes of Clayton's motion, the pleadings are viewed in the light most favorable to the plaintiff, with all reasonable inferences drawn and any doubts or ambiguities resolved in the plaintiff's favor. See Universal City Studios, Inc. v. Nintendo Co., 746 F.2d 112, 115 ...


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